To succeed in the business of buying and selling goods and services, controlling and limiting risk is essential. In this age of e-commerce, customers expect to be able to easily enter their credit card data without having to think twice about the security or risk involved with their payments. But for the merchant, there is some inherent risk associated with credit card payments. Beyond the obvious possibility of chargebacks, there are the costs and contracts associated with credit card processing.
Many merchants simply accept the costs tied to credit card processing and don’t take the time to question how much they’re paying for this service. It’s in your best interest to carefully review your credit card processor agreements and understand how and why the processing fee is calculated.
Remember, the credit card processor wants your business. Just as you negotiate with third-party vendors and suppliers, you have the right—if not the obligation—to ensure you’re not paying too much for this important feature in your business.
Credit Card Processing Basics
Credit card processing is a complicated business, but there’s no need to get bogged down in deep details just to maintain it as an effective feature of your business practices. As a merchant, it’s important to understand the credit card processing fee structure and the three ways credit card processing contracts are structured.
The credit card processing fee has three components:
- Interchange fee: This is a non-negotiable component of the processing fee. This fee is paid to the issuing bank for each merchant credit card transaction.
- Assessment fee: This is also a non-negotiable component of the processing fee. Merchants pay Visa, MasterCard, or Discover (American Express is different) an assessment fee to accept cards displaying the credit card company logo.
- Processor markup: This is the negotiable component of the processing fee. The processor markup fee varies based on the type of credit card processing contract.
As you can understand, the processor markup fee ensures that you are not overpaying for credit card processing. While the processor markup fee is negotiable, this fee is impacted by the type of processing contract you sign.
- Pass-through pricing: This model allows merchants to see each component of the processing fee. Merchants know the processor markup and can negotiate to control this cost.
- Flat rate: Merchants pay a flat rate and don’t see the breakdown of the three fee components—meaning they don’t know the amount of the processor markup.
- Bundled: This model can have a lot of flexibility in how it’s assembled, with a complicated structure that includes variable fees based on qualified and non-qualified transactions and rates.
These are the basics of credit card processing fees. With this knowledge, your next step in determining if your credit card processing fees are reasonable or too high is in taking a closer look at your business model and revenue stream.
Credit Card Processing and Your Business
You can spend many hours researching and learning about credit card processing, credit card processor companies, payment gateways, and the intricacies of processing contracts. But that might not be the most prudent use of your time when deciding how to implement this important fixture in your business.
The smart move is to work with a payments solution company like Verifi. We are industry-leading experts in payment gateways, in addition to payment security and fraud prevention solutions. We have long-standing partnerships with many of the top payment processing companies.
To learn more about payments security solutions, contact us and we’ll gladly help guide you through setting up payment processing for your business. There can be a lot of decisions to make when determining what kind of payment processing service you’re looking for. This includes the structure and length of your current contract, how your customers primarily pay for your products or services, and what kind of additional processing features you need, such as fraud protection, encryption, analytics, and data storage.
If you’re just at the beginning of building the structure of your business, this might sound more complicated than it is. Read our white paper titled How to Choose a Payment Processing Partner to learn more about payment processing. There are many steps to take in creating and maintaining a successful business—it’s always best to take them just one step at a time.